J.P. Morgan Chase said to be near $150 million SEC settlement

J.P. Morgan Chase & Co. will soon settle allegations it inappropriately steered private-banking clients to its own investment products without proper disclosures, according to the Wall Street Journal on Tuesday. The settlement with the Securities and Exchange Commission, expected to include a fine of more than $150 million, could be announced within the next few weeks. The investigation centered on whether J.P. Morgan
JPM, -1.56%
bankers recommended the bank’s own so-called proprietary investment products clients too often to clients, generating higher fees than if clients were put in competitor’s products. The Office of the Comptroller of the Currency, the bank’s primary regulator, and the state of Indiana’s Securities Division are also looking into the practice.

It’s been four years now that the Public Company Accounting Oversight Board, the audit industry regulator, has been inspecting the auditors of brokers and dealers registered with the SEC and the results keep getting worse, not better. The latest report identified high levels of conflict of interest, or independence, findings and auditing deficiencies that repeat the issues cited in previous years. The PCAOB staff identified independence findings in 26 of the 106 audits, or nearly 25%, of the audits selected. The most common conflict: The auditors are preparing the financial statements they come back to audit and give an opinion on at the end of the year. That is prohibited under SEC auditor independence rules. In twenty of those audits, the firms only served broker/dealers and did not audit any other public companies. The PCAOB inspectors also identified audit deficiencies—omitting, or insufficiently performing, certain audit procedures—at every one of the 66 firms it inspected in 2014. The PCAOB plans to increase the number of firms to be inspected during 2015 by 14%.

At least 18 banks made trades that may have been motivated more by regulation than a desire to make money, The Wall Street Journal reported on Monday. Digging into a report published in June by the Department of the Treasury’s Office of Financial Research, and reported on by MarketWatch at that time, the Wall Street Journal identifies Citigroup
C, -1.64%
, Bank of America
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, Goldman Sachs Group Inc.
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, Morgan Stanley
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, Deutsche Bank AG
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and Standard Chartered PLC
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among the banks making trades potentially driven by a desire to improve capital ratios. Regulatory capital is the amount of capital a bank is required to hold to protect it from potential losses. The Office of Financial Research, suggested in its report that the trades run the risk of “obscuring” whether a bank has adequate capital and pose other “financial stability concerns.” Standard Chartered PLC has done 12 capital-relief trades since 2005. A spokesman for Citigroup told the reporters, “We don’t enter into any transactions for the sole purpose of artificially reducing risk-weighted assets or increasing regulatory ratios.” The bank made $16 billion in capital protection trades in the fourth quarter of 2014. Goldman Sachs and Morgan Stanley declined to comment. The SEC and the Federal Reserve have also reportedly voiced concerns about the trades.

The Wall Street Journal says interns may be dangerous to a bank’s health. Bank of New York Mellon Corp.
BK, -2.04%
agreed to pay $14.8 million to settle civil charges that it violated foreign-bribery laws, The Wall Street Journal reported on Tuesday. The offense: Giving internships to relatives of officials from a Middle Eastern sovereign-wealth fund. This one of the first enforcement actions brought by the SEC against a financial institution under the Foreign Corrupt Practices Act, but other banks such J.P. Morgan Chase have also answered regulators’ questions about their practices of providing jobs and internships to the family of clients who are often government officials in countries like China. The law bans U.S. companies from giving anything of value to a foreign official to gain an unfair advantage or business favors.

Francine
McKenna

Francine McKenna is a MarketWatch reporter based in Washington, covering financial regulation and legislation from a transparency perspective. She has written about accounting, audit, fraud and corporate governance for publications including Forbes, the Financial Times, Accountancy and the American Banker. McKenna had 30 years of experience at banks and professional-services firms, including at PwC and KPMG, before becoming a full-time writer.

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Francine
McKenna

Francine McKenna is a MarketWatch reporter based in Washington, covering financial regulation and legislation from a transparency perspective. She has written about accounting, audit, fraud and corporate governance for publications including Forbes, the Financial Times, Accountancy and the American Banker. McKenna had 30 years of experience at banks and professional-services firms, including at PwC and KPMG, before becoming a full-time writer.

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